Commercial Mortgage Market Monitor July 2017

Fixed Income Commentary

The legacy CMBS delinquency rate and special servicing rate ended June at 39.0% and 46.0%, respectively, as pay downs and liquidations
reduced the outstanding universe of legacy loans to $50.9BN (denominator effect) and a larger proportion of 2006-2007 loans outstanding are
secured by underperforming and/or overleveraged properties (adverse selection).

Reviewing the refinance success rate for loans scheduled to mature in 2017, the success rate totaled 66% as of July – up from 64% as of June
– but still consistently lower than the 72% success rate in 2016 and 79% rate in 2015. Turning to liquidation activity, July saw $1.4BN in
liquidations across 94 loans, with more than 66% of the balance made up of 2006-vintage loans. The average loss severity excluding nonmaterial
losses (defined as less than 2.0% loss) was 59%, up from 49% in June.

In CMBS 2.0, the delinquency rate and special servicing rate remained modest at 0.29% and 0.55%, respectively.
In new issue, July was another busy month with $7.6BN in private-label pricing across 15 deals, resulting in year-to-date issuance of $42.1BN.
In conduit, four deals ($3.6BN) priced, with execution on the LCF AAA’s ranging from swaps +88-91bps and execution on the BBB-‘s ranging
from swaps +345-375bps. Risk retention structures included horizontal, vertical, and L-shaped solutions.

In Single Asset Single Borrower (SASB), 11 deals ($4.1BN) priced, consisting of five fixed-rate and six floating-rate transactions. Only one deal
carried a 10-year term, backed by a Manhattan mixed used property, with the AAA’s pricing at swaps +98bps. The SASB risk retention
structures varied between horizontal and vertical solutions. Of note, over 90% of the SASB issuance year-to-date represents refinancing – up
from 67% in 2016.